Levine on Wall Street: Ruble Trouble and Personal Benefit

Matt Levine is a Bloomberg View columnist. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz and a clerk for the U.S. Court of Appeals for the Third Circuit.
Read More.
a | A

Ruble trouble.

“Our traders are informing me that we see no bids to buy rubles,” says a Swedish banker, after the ruble lost more than 10 percent of its value against the dollar yesterday. And it's getting worse, even after the Russian central bank raised interest rates from 10.5 percent to 17 percent "shortly after midnight," which is generally not when you announce central bank actions if everything is cool. "In a situation where a central bank allows its currency to depreciate by 10% in a day, the message is that they have lost control, and their very credibility is at stake," says an analyst. Here at Bloomberg View, Leonid Bershidsky points out that the ruble's weakness yesterday wasn't related to oil prices, and traces it to a big Rosneft bond issue that the central bank quickly agreed to fund. (Craig Pirrong makes a similar case.) Joseph Cotterill compares this rate hike to those in the 1998 crisis ("The CBR hiked from 30 per cent to 150 per cent between May 19 and May 27 that year," so we're not there yet).

Some insider trading.

Here is Peter Henning on the fallout from last week's big U.S. v. Newman insider trading decision; it seems unlikely to me that too many already-closed cases will be reopened but I don't really know. Here is Stephen Bainbridge arguing that Newman merely clarified the law of personal benefits in insider trading, but didn't change it: "Being friends is not a personal benefit. Being friends with benefits, however, is the requisite personal benefit." In any case, the Securities and Exchange Commission's insider trading case against the friend of a roommate of an analyst at Pershing Square for trading on information about Pershing Square's plans for Herbalife seems to have collapsed, possibly in part because of the Newman decision though also because all of the witnesses went back to Poland.

Elsewhere, Ronald Barusch argues that Congress should change the law to eliminate the personal-benefit requirement in insider trading, at least for professional investors: "If they know they shouldn’t have the information, they shouldn’t use it." I am skeptical. The key question is: What is insider trading law about? If you say "it's about making the markets fair," then you are lost, there is no hope for you, markets are always and everywhere entirely about information asymmetries. If you say "it's about preventing insiders from profiting from their information illicitly," then the personal-benefit requirement makes a sort of sense. 

Finally, Steve Cohen is looking to hire "a former prosecutor and several agents from the Federal Bureau of Investigation" to work with him at Point72, and I hope the job description is, like, you sit in Cohen's office and he makes fun of you about the Newman decision.

Some swaps pushout.

I remain puzzled. I am late to it, but this John Carney piece from Friday gives you some sense of the importance of swaps push-out to the banks; basically insured bank subsidiaries are considerably better rated than bank holding companies, so booking swaps there "gives banks an advantage in pricing and collateralization of derivatives." Matt Yglesias argues that this is a sign that financial reform is working: If you thought that Citi was "too big to fail," you'd be indifferent between booking a swap with Citigroup or with Citibank, N.A. If in fact customers prefer the bank, then that means that the holding company has to some extent shed its too-big-to-fail subsidy. You might ask for some consistency in this: The banks sure seem to think that they're not too big to fail (which is why they oppose swaps push-out), but, as I said the other day, a lot of the people who advocate for swaps push-out also continue to worry that the holding companies are still too big to fail. Elsewhere, Elizabeth Warren is mad at Citigroup. And Alexis Goldstein dissects Citi's public relations failures relating to swaps push-out.

One aspect of swaps push-out is that it applies to uncleared credit derivatives. Clearing, on the other hand, makes everything safer, right? You should read Dan Davies on this point:

The problem with clearing houses is really not the remote, theoretical (although admittedly horrifying) risk that one of them might suffer a counterparty default which forced it into insolvency. The problem about clearing houses is that the ways in which they protect themselves against credit risk tend to have the effect of radiating liquidity problems out into the rest of the system.

Is Bill Gross crazy?

No, said Bill Gross, when asked that actual question, on television. Also: "To my way of thinking, my management style was too lax and loose at Pimco," so you can see why Janus put him a sealed box a thousand miles from any other Janus employee. Elsewhere, Jeff Gundlach, now anointed as the king of bonds, talks about his investment calls, and about how he thinks Pimco is too big.

Some scams.

Alleged scams. There is "Ferrari-Racing Loan Mogul Said to Face Racketeering Case"; said mogul was a leader in Internet payday lending using Native American sovereign tribal immunity. Also, yes, a race car driver. And there is this: "The Securities and Exchange Commission today charged a New Orleans-based oil-and-gas company and five executives with running a stock trading scheme in which they claimed to have struck oil in Belize in order to manipulate the price of the company’s stock as they illegally sold restricted shares to the public," because it is apparently easier to drill for oil on the floor of the penny stock exchange than it is in Belize. (Also I love that they drilled their fake oil in a locale already known for penny-stock scams.) Here's a case where the promoter raised money to invest in "a Wyoming-based investment fund to which he claimed to have a close connection"; in fact, says the SEC, he had no connection to the fund and just Ponzied it up with the money he raised. And the first guy to be accused of criminal spoofing argues that the law is too vague.

Don't rap.

There are a bunch of activities where:

  • the financial media is nearly unanimous that you Shouldn't Do Them, but
  • the financial industry keeps doing them anyway.

Off the top of my head, things in this category might include various tax-avoidance transactions, bank capital optimization, high-frequency trading, etc. In these areas, I find it useful to be skeptical of the media consensus; people who are actually in the financial industry as their day job might have a bit more insight into these activities than people who just write about them.

So, look, there is a financial media consensus that financial firms should not write their own songs for their holiday videos, and there is an even stronger financial media consensus that senior financial services employees should never rap. But it keeps happening. Is this one of those cases where the media simply doesn't appreciate the realities of the industry that it covers? Here is David Rubenstein rapping in the Carlyle Group's holiday video. I'm with the media consensus on this one.

Kids these days.

Stuyvesant High School student Mohammed Islam made Business Insider's "20 Under 20" list of teen traders in 2013, and decided to top that by having a really fun media day yesterday. The day started with an appearance in New York Magazine's "Reasons to Love New York" issue with a claim that he had made $72 million in the stock market. (No, "trading oil and gold," but why split hairs?) Then he almost did CNBC, but decided not to, but managed to deny the $72 million number to CNBC anyway: "Instead the figure is believed to be a few million dollars, but Mr. Islam declined to be more specific." And by the evening he talked to the Observer and told them that he had never made any money at all investing and the whole thing was a complete lie. By lunchtime today we'll learn that Islam is 46 and that Stuyvesant High School does not actually exist. It seems like just two weeks ago we were talking about another teen trader who had made, um, thousands trading penny stocks and was trying to parlay his coin flips into a newsletter business. I submit to you that fake teen day-traders are a better reason to love New York than real ones are.

Things happen.

RBS employee is inconvenienced by Russell Brand publicity stunt, writes open letter to Russell Brand. RBS is selling cocos. It may not surprise you to learn that Marty Lipton likes the paper accusing Harvard of securities fraud. "There is only one solution that will begin the process of establishing a more equitable and more just social system: we must send Grumpy Cat to the guillotine." A Poisonous Zamboni Machine Hospitalized 81 People This Weekend.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Matt Levine at mlevine51@bloomberg.net

To contact the editor on this story:
Zara Kessler at zkessler@bloomberg.net